Opaque Offshore Transactions At London Based

An MP and a cam­paign­er call for author­i­ties to inves­ti­gate anony­mous loans to the UK firm, which until last year con­trolled a top chem­i­cals and min­ing com­pa­ny in Kazakhstan.

window.tgpQueue.add('tgpli-64a7dc9563a05')The sky­line of Almaty city in Kazakhstan, source: Kalpak Travel on Flickr, cre­ative com­mons license

LONDON—Amid all the hard talk about the urgency of stop­ping dark mon­ey from enter­ing the UK from coun­tries with a his­to­ry of high-lev­el cor­rup­tion, untrans­par­ent trans­ac­tions made by a Kazakh min­ing giant reg­is­tered in Britain remain unscrutinised.

The data has been made pub­lic on the UK’s cor­po­rate reg­is­ter, Companies House, but has not been report­ed in the media previously.

The com­pa­ny in ques­tion is Kazphosphate, cre­at­ed in 2006 in the UK as a hold­ing for a top Kazakhstan phos­phate min­ing oper­a­tion, accord­ing to UK cor­po­rate fil­ings. For the dura­tion of the trans­ac­tions, between 2007 and 2019, its ben­e­fi­cial own­er was Galimzhan Yessenov, a wealthy Kazakh busi­ness­man who at the time was the son-in-law of Akhmetzhan Yesimov, an influ­en­tial gov­ern­ment offi­cial, chair of the sov­er­eign wealth fund of the coun­try, and hus­band of the daugh­ter of then-dic­ta­tor Nursultan Nazarbayev.

Nazarbayev was deposed of pow­er in January last year after vio­lent protests in Kazakhstan.

These trans­ac­tions sat in plain sight of the UK gov­ern­ment and reg­u­la­tors for years, and were first brought to pub­lic atten­tion in February 2022 after a bru­tal crack­down on protests against Kazakhstan’s repres­sive regime prompt­ed calls for sanc­tions against the country’s elite.

Dame Margaret Hodge, a promi­nent Labour MP and one of the staunchest voic­es call­ing for sanc­tions, at the time named a series of Kazakhs who have con­nec­tions to the UK cor­po­rate ser­vices sec­tor. Among them were Yessenov and his for­mer father-in-law.

“Akhmetzhan Yesimov, chair­man of the sov­er­eign wealth fund, alleged­ly abused his posi­tion to give his for­mer son-in-law, Galimzhan Yessenov, relat­ed par­ty loans through secre­tive British Virgin Islands com­pa­nies to buy a UK enti­ty called Kazphosphate. Yessenov is now one of Kazakhstan’s rich­est men,” said Hodge in Parliament last February, in a wide-rang­ing speech crit­i­cis­ing the alleged cor­rup­tion of Kazakh elites and their Western helpers.

Yessenov denied any impro­pri­ety and Yesimov could not be reached for com­ment. There is no sug­ges­tion that either of them act­ed ille­gal­ly nor have they been offi­cial­ly accused of any wrongdoing.

Yessenov took over Kazphosphate using an unse­cured, inter­est-free loan from a par­ty relat­ed to him in the amount of $141 mil­lion, as evi­denced by the firm’s 2007 and 2008 finan­cial accounts pub­lished in the UK. This was com­posed of $131 mil­lion from Kennon Finance Ltd, a shell com­pa­ny reg­is­tered in the British Virgin Islands, $9.4 mil­lion from Drewes Management Ltd, reg­is­tered in Seychelles, and Daryn LLC with $6.6 mil­lion. The loans from Drewes and Kennon had “no fixed repay­ment date,” the fil­ings said, adding that the com­pa­nies in ques­tion “are relat­ed par­ties to Kazphosphate Plc by virtue of com­mon ownership.”

The acqui­si­tion and loan coin­cid­ed with Yessenov becom­ing Yesimov’s son-in-law that same year.

The Kazphospate loans men­tioned above had been paid down to $108 mil­lion in 2015, at which point anoth­er off­shore enti­ty clas­si­fied as relat­ed to Kazphosphate’s ben­e­fi­cia­ries, Disport International Ltd, reg­is­tered in the Marshall Islands, stepped in with anoth­er loan of $108.8 mil­lion to the com­pa­ny, the annu­al report for that year shows, with­out spec­i­fy­ing the terms of the loan.

Also in 2015, Disport lent $20 mil­lion to Deverel Finance, a com­pa­ny reg­is­tered in the British Virgin Islands, accord­ing to doc­u­ments leaked to the International Consortium of Investigative Journalists (ICIJ) and shared with Reporter. The ulti­mate ben­e­fi­cial own­er of Deverel or Disport was not record­ed in the loan agree­ment, but the account where the loan was due to be paid was at CBH, a Swiss pri­vate bank. Another con­tract from the same year leaked to the ICIJ shows that Disport bor­rowed $7 mil­lion from Deverel under sim­i­lar terms, through the same accounts at CBH in Switzerland.

Fast for­ward to 2019, and Kazphosphate sim­ply buys Disport out­right, the shell com­pa­ny it owed mon­ey to and which its own­ers had an admit­ted con­nec­tion with. This trans­ac­tion also bears sev­er­al defin­ing char­ac­ter­is­tics, found with­in the annu­al report pub­lished by the com­pa­ny to cov­er the finan­cial year of 2019.

Disport’s entire share cap­i­tal was bought by Kazphosphate for $1 on September 13 of that year, and two weeks lat­er on October 28 the phos­phate giant bought anoth­er 136.8 mil­lion new­ly-cre­at­ed Disport shares at $1 a pop, only to sell the entire con­sid­er­a­tion on December 30, 2019 for $1.

“We have been unable to obtain suf­fi­cient expla­na­tion of the com­mer­cial rea­son­ing for these trans­ac­tions,” des­ig­nat­ed audi­tor Yogan Patel from MHA Macintyre Hudson wrote in his opin­ion, as he booked an $87.7 mil­lion loss for Kazphosphate in 2019.

In the same dec­la­ra­tion attached to the report, the accoun­tant said of the Disport trans­ac­tion: “we have been unable to obtain suf­fi­cient evi­dence to con­firm that this trans­ac­tion result­ed in the com­pa­ny obtain­ing con­trol and that this con­trol was not tran­si­to­ry in nature.”

More gen­er­al­ly, the audi­tors of Kazphosphate in 2019 “were unable to deter­mine whether ade­quate account­ing records have been kept,” accord­ing to the statement.

The UK com­pa­ny appears to have been sep­a­rat­ed from the Kazakh phos­phate oper­a­tion as of 2021, accord­ing to the lat­est https://www.opendemocracy.net state­ment of accounts, issued in December 2022. “The direc­tors intend to allow for the com­pa­ny to be placed into mem­bers vol­un­tary liq­ui­da­tion in due course,” the doc­u­ment says. The Kazakh min­ing and pro­cess­ing oper­a­tions con­tin­ue under anoth­er struc­ture and new own­er­ship after the UK com­pa­ny sold them for $612 mil­lion in May 2021.

The Kazphosphate trans­ac­tions had been flagged to the Swiss finan­cial reg­u­la­tor, accord­ing to a report last year in Swiss news­pa­per Sonntag Zeitung.

London life

window.tgpQueue.add('tgpli-64a7dc9563a19')The City of London at night, source: Barnyz on Flickr, cre­ative com­mons license

London-based SH Landes and MHA MacIntyre Hudson have been the accoun­tants and audi­tors, respec­tive­ly, of Kazphosphate, over the entire­ty of the peri­od of these trans­ac­tions and until 2021. The audi­tors reports were “qual­i­fied” – which is to say not ful­ly sup­port­ive of the claims in the company’s books – for nine of these 14 years, while an opin­ion was with­held entire­ly for 2019 for lack of sup­port­ing evi­dence pro­vid­ed by their client.

SH Landes has car­ried out oth­er activ­i­ty for the Central Asian elite. It also act­ed for Dariga Nazarbayeva, anoth­er wealthy Kazakh with valu­able assets held in the UK, sep­a­rate cor­po­rate fil­ings show. Nazarbayeva, the daugh­ter of Nursultan Nazarbayev, has been con­nect­ed by British media with a failed finan­cial firm that spe­cialised in facil­i­tat­ing investor visas to the UK. Nazarbayeva won a claim against the National Crime Agency in 2020 after the law enforce­ment body imposed a freez­ing order on prop­er­ties linked to her in the UK val­ued at over £80 mil­lion. There is no sug­ges­tion of ille­gal­i­ty on her part or on the part of SH Landes.

Meanwhile, a March 2023 report from Freedom for Eurasia, an NGO, said SH Landes also worked for prox­ies of Gulnara Karimova, a con­tro­ver­sial Uzbek “princess,” in sev­er­al busi­ness deals even as she was being pub­licly accused of cor­rup­tion, which she denied.

In response to a ques­tion about Kazphosphate, Dame Margaret Hodge MP told Reporter: “Kazakhstan has long had a prob­lem with cor­rup­tion. That’s why ear­li­er [last] year I gave a speech in Parliament demand­ing that the UK Government issue sanc­tions against the polit­i­cal elite in the region that have robbed from their peo­ple to fill their own pock­ets. Now these lat­est rev­e­la­tions sug­gest that UK com­pa­nies are still being abused to facil­i­tate the flows of poten­tial­ly cor­rupt or illic­it finance out of Kazakhstan. I urge UK law enforce­ment to look into this case.”

Thomas Mayne, a cam­paign­er and asso­ciate fel­low at Chatham House as well as a research fel­low at the University of Oxford, who has co-authored an influ­en­tial recent report into the risks of cor­rup­tion inher­ent in Kazakh-linked wealth in the UK, told Reporter the shell com­pa­ny lend­ing to Kazphosphate and sub­se­quent takeover of Disport high­light­ed in the Companies House fil­ings “is incred­i­bly strange.”

“Why pro­vide an unse­cured loan to a guy in his mid 20s with no track record? The ben­e­fi­cial own­er­ship of the loan com­pa­nies is not known but relat­ed to the Kazp[hosphate] own­er­ship. So they are lend­ing mon­ey to them­selves? Where was this mon­ey from?” ques­tioned Mayne via email.

“The fact that these loans still lead to a loss cou­pled with the pos­si­bil­i­ty of inad­e­quate accounts would be a rea­son [for the author­i­ties] to inves­ti­gate the nature of this company’s deal­ings. There is a dan­ger that the com­pa­ny is being used for cap­i­tal flight.”

Mayne added: “London has had an open door pol­i­cy for years on dubi­ous cash, only real­is­ing the fol­ly of that posi­tion with regard to Russia after its inva­sion of Ukraine, but maybe the pen­ny has not yet dropped with Kazakhstan and oth­er countries.”

Yessenov lost con­trol of Kazphosphate togeth­er with oth­er finan­cial inter­ests soon after his divorce in 2020. He remains list­ed on Companies House fil­ings as one of the “per­sons with sig­nif­i­cant con­trol” at Kazphosphate, along­side his ex-wife Aizhan Yessim, who now owns “more than 25% but not more than 50%”.

“The UK has strong anti­cor­rup­tion laws but they are use­less if not enforced. We see very few enablers being inves­ti­gat­ed although there are lots of rules against enablers,” Mayne said. “The UK is at a cross­roads, it needs to look at itself and decide if it wants to con­tin­ue allow­ing dirty mon­ey. My fear is a lot of peo­ple in pow­er would think we can’t afford to give it up in an eco­nom­ic crisis.”

There is no sug­ges­tion that Yessenov has done any­thing ille­gal in rela­tion to these trans­ac­tions. Kazphosphate’s press office did not respond to emailed requests for comment.

An in-house lawyer of Mr Yessenov’s com­pa­nies group, Timur Janabayev, respond­ed via a Proton Mail account to a right-to-reply email Reporter sent to the pub­lic address list­ed on the web­site of the Yessenov Foundation.

Janabayev denied on behalf of Kazphosphate and Yessenov that Kazphosphate had engaged in sus­pi­cious trans­ac­tions, adding that “the pur­chase of Kazphosphate had been financed by a pub­lic bank which had pledged assets of Mr Yessenov. The use of sev­er­al com­pa­nies had mere legal busi­ness rea­sons, which do not raise any sus­pi­cion of incon­sis­ten­cies”. He did not answer Reporter’s ques­tion about the eco­nom­ic rea­son for using off­shore struc­tures, nor the rea­son the full infor­ma­tion under­ly­ing these struc­tures was not dis­closed to Kazphosphate’s own accoun­tants, as per the company’s own annu­al reports.

Janabayev also appeared on a Swiss memo obtained by Reporter through the ICIJ datab­se as the liq­uida­tor of Drewes Management, with effect from February 2016.

Original arti­cle: REPORTER. LONDON